Mind the gap between carbon tax fears and reality

Like Y2K and the start of the GST, there are plenty of fears and apprehension facing the start of the carbon laws next week.

After a shameless scare campaign, more than a third of Australians believe they will be “much worse off” under the carbon pricing legislation, which kicks in on Sunday.

The reality will be much closer to Y2K than the GST, which had an inflationary impact four times higher than the carbon price's likely impact.

Research from The Climate Institute, CHOICE and the Australian Council of Social Service – backed by findings from state based independent pricing regulators – shows the impacts will be moderate, with around a 0.6 per cent CPI impact in the first year and negligible impacts in following years.

Tax cuts and pension increases will leave many households better placed to face real household expenses and opportunities.

So while Australians' anxiety for cost of living impacts is understandable, the level of concern about impacts from the carbon tax is misplaced.

People should look for themselves at the evidence especially as it unfolds over coming days and months.  Australians don't like being taken for a ride and one of the big questions is whether reality will register through today's cynicism about politics as well as real and perceived fears about costs of living.

In late May, Ipsos Social Research Institute asked over 1,000 Australians whether they would be worse or better off after the new carbon laws. They found 36 per cent fear their households will be “much worse off” and 29 per cent “a little worse off” under the carbon price legislation.  One-in-five (20 per cent) thought their situation would be about the same; 10 per cent thought they would be better off.

The number of those who perceive themselves “much worse off” will be a crucial benchmark to the political sustainability of the policy. Past research has shown that people are prepared to do their bit and support reforms, especially if they see some signs of effectiveness.

A key number to watch will be movements on the now yawning gap between the extreme fears and the reality of moderate impacts or actual benefits.

The reality is that most households will not feel the impact nearly as much as they seem to think.

The CSIRO and AECOM research also found that if 100 per cent of costs are passed through, the average weekly impacts would be around $9.10 per week with a $3.20 increase in energy bills being the largest component. The average household will spend an extra two cents for a loaf of bread and a litre of milk, 11 cents for a leg of lamb and 14 cents weekly on fruit and vegetables.

These costs are offset for most when you factor in government tax cuts and pension increases amounting to $10.10 for the average household.

Energy costs are going up more because of investments in poles and wires, costs happening regardless of the carbon laws.

There are simple energy efficiencies that can put households even further ahead. Estimates show many families could be another $12.75 better off per week ($663 per year) by making small changes in the home including water saving showerheads, cold wash and reducing standby power consumption.

There are price impacts that come as a consequence of making around 300 of our businesses finally start to take responsibility for their greenhouse or carbon emissions by buying pollution permits. In three years these companies will need to face a steadily declining number of permits as we move to an emissions trading scheme that will by law reduce pollution impacts by at least 12 million tonnes a year. 

If Australians begin to understand these consequences and start to recognise that all the revenue from the pollution permits are being used not only to back households and businesses, but also to help fund clean energy investments, environmental protection and agricultural improvements, then opinion could swing. 

The gap between extreme fears and reality is a gap worth minding – Australians should check out the facts for themselves.

John Connor is the CEO of The Climate Institute.